The UK Office of Fair Trading (OFT) has published a consultation on proposed changes to its guidance on the circumstances in which the OFT will exercise its power to apply for director disqualification orders in competition law cases. In appropriate cases, disqualification orders can apply to executive and nonexecutive directors. The OFT’s previous guidance was published in May 2003.
Individuals who participate in certain hard-core infringements, like price fixing and bid-rigging, risk fines and custodial sentences while directors responsible for the participation of their company in any such infringements may face disqualification. Under the current law set out in the Directors Disqualification Act 1986 (as amended by the Enterprise Act 2002), company directors can be barred from acting as directors for up to 15 years for a breach of competition law if the court considers that they are unfit to be concerned in the management of a company.
The OFT and certain sectoral regulators (e.g. regulators for companies in telecoms, water, energy, rail and aviation) have the power to apply to the court for disqualification orders in cases involving infringements of the Competition Act 1998 and the EC Treaty. In the 2008 marine hose cartel case, three individuals were disqualified from being company directors; one was disqualified for seven years and two others for five years each. The director disqualification orders were made by the court under the Company Directors Disqualification Act 1986, which gives the court power to disqualify directors for committing an indictable offence. This was the first time that individuals were disqualified from acting as directors for anti-competitive behaviour.
The OFT commissioned a report by Deloitte & Touche LLP in November 2007 on the deterrent effect of competition enforcement. The report concluded that the personal nature of director bans represents a powerful deterrent to anti-competitive behaviour, as compared with sanctions imposed on the corporation alone, such as fines. The report found that companies' average ranking of the factors which motivate compliance is:
- criminal penalties;
- disqualification of directors;
- adverse publicity;
- fines and
- private damages actions.
In the past, the OFT has only focused on directors who were personally involved in cartel activity (price fixing). The OFT is now consulting on the following changes:
- whether to punish even those directors who were not directly involved but either failed to take steps to prevent a breach by their company or failed to keep themselves sufficiently informed of their company's actions;
- whether to apply for a disqualification order in cases where a company has applied for leniency but (i) has been granted only limited leniency (e.g. because it was not the first company to produce evidence of the infringement), or (ii) a director fails to cooperate with the OFT’s investigation. This will increase the incentive on companies to apply for leniency at an early stage in order to benefit from more generous forms of immunity or leniency, including for directors;
- whether it is appropriate to apply for a disqualification order where a decision of the competition authority is subject to an appeal only as to quantum, not as to the finding of infringement; and
- whether it is appropriate for the OFT to apply for an order where no fine has been imposed on the company.
The general aim is to increase the incentives on company directors to take responsibility for competition law compliance, to keep themselves informed of the company’s activities and to take proactive steps.
The guidance on which the OFT is consulting would place an increased burden on company directors in terms of their monitoring obligations. It is a clear indication that companies and their directors cannot afford to ignore the relevant competition law provisions. The OFT has given interested parties until 20 November 2009 to respond to the consultation. The general aim is to increase the incentives on company directors to take responsibility for competition law compliance, to keep themselves informed of the company’s activities and to take proactive steps.
The guidance on which the OFT is consulting would place an increased burden on company directors in terms of their monitoring obligations. It is a clear indication that companies and their directors cannot afford to ignore the relevant competition law provisions. The OFT has given interested parties until 20 November 2009 to respond to the consultation.